Audit cites significant PSS financial understatements

An independent audit conducted on the CNMI Public School System financials have identified significant understatement of cash, capital assets, liabilities and expenses.

The audit, which was conducted by accounting firm Ernst & Young (CNMI), Inc., stated that there appears to have been a combination of “lack of reconciliations, improper performance of cut-off procedures, ineffective communication among PSS finance team and other departments, and insufficient supervision and review relating to significant classes of transactions.”

Because of these, “material errors over the financial statement close process may exist and not be identified and corrected in a timely manner, resulting in the preparation of materially misstated financial statements.”

The audit covered the year ending Sept. 30, 2021, and the report was completed on April 26, 2023.

The Office of the Public Auditor received the audit report last Thursday. The audit is an 82-page report that contains reports of independent auditors, management’s discussion and analysis, audited financial statements, required supplementary information, reports on internal control and compliance, schedule of findings and questioned costs, corrective action plan, and the summary schedule of prior year audit findings.

The auditors recommend improving controls to ensure all transactions, including non-cash transactions, are recorded in the proper accounting period.

PSS agreed with the findings. Education Commissioner Dr. Alfred Ada said the Finance Department’s lack of adequate staffing and management personnel “contributed to the findings. Finance director and comptroller position was filled and have implemented [a] financial statement close process including cutoff procedures, account reconciliations and in-depth review of transactions related to payroll, purchases and federal award income and cash receipts.”

PSS said the remaining findings/recommendations will be addressed by Sept. 30, 2023, which is the end of the current fiscal year.

In the area of General Ledger and Schedule of Expenditures of Federal Awards, the audit found that PSS did not have effective controls over the preparation of the SEFA—a financial statement schedule prepared by management that lists an organization’s expenditures of federal assistance for the fiscal year by federal agency, grant number, and amount.

According to the audit, PSS’ SEFA did not include a $1.2-million loan from the U.S Department of Agriculture for which proceeds were used to pay-off a commercial bank loan.

Therefore, the audit suggests “PSS should improve controls to help ensure the SEFA is prepared accurately and completely. Any cutoff procedures performed for the financial statements must also cover the SEFA.”

PSS also agreed with the finding. According to Ada, the Federal Programs Office has hired a director of Internal Control & Evaluation and deputy budget officer to oversee and ensure that SEFA is prepared accurately and completely while working closely with federal programs officer and financial budget analyst.

“Future preparations of the SEFA will follow the accrual basis, so activities and receipt of goods that occurred during the fiscal year will be reflected in both SEFA and in the books. The Federal Programs Office process of recording grant revenues, reporting and SOPs will be revisited,” he said.

PSS earlier said it will issue a statement about the audit results, but has not issued one yet as of press time.